Govt is entitled to get its money back with interest if VVIP chopper deal is scrapped

Scrapping the Rs 3,546-crore VVIP chopper deal could be a politically expedient move as the contract has multiple safeguards that ensure minimum loss to the government in case the decision is finalised. While the government has to find a way to invoke the strict integrity pact, it ensures that India will be able to recover all payments made, with interest, from the manufacturer.

The integrity pact that was signed by AgustaWestland on October 3, 2008 (it is also mentioned in the final contract) specifies that the seller cannot employ any individual or firm to intercede on its behalf for an Indian contract.

In case the government processes the case for cancellation, as the defence ministry has asserted, sections 6, 7, 10 and 12 of the integrity pact will be applied, which are also reflected in articles 22 and 23 of the final contract, which was signed in 2010.

While section 6 of the pact specifies that the company cannot pay bribes or influence officials, section 7 ensures a commitment from the seller that there have been no transactions in the last three years where the company has indulged in corrupt practices or paid money to middlemen.

The pact also specifies the legal requirements that the Prevention of Corruption Act (PCA) and chapter 9 of the IPC should not be violated. Importantly, the pact empowers the government or its agency — in this case the CBI — to examine the books of the seller if a case of violation is found.

As things currently stand, India has made two payments for the helicopters. While the first one was Euro 86,439,303, or 15 per cent of the value of the contract, the second tranche was for Euro 166,878,607 that amounted to 30 per cent of the contract value.

As per the procurement rules, the seller company had to provide full bank guarantees for the 45 per cent of the payment that has already been made. In case of a violation of the integrity pact, the buyer can cancel the contract, encash the bank guarantees and ban the company for a period of five years. However, sources said the government is still trying to ascertain if the bank guarantees were indeed furnished by the seller in this contract. The banker of the chopper company is Deutsche Bank.

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